Prospects of Russian Oil and Gas Business in India

As is well known, India is actively developing its production and energy sectors, and is among the countries with the greatest demand for various energy carriers, which will only increase in the foreseeable future. By early 2017, India ranked fourth in the world in terms of energy consumption. At the same time, the country’s domestic oil and gas reserves provide it with about 30% of the required fuel, and the rest has to be imported. Like other major hydrocarbon importers in East Asia, India buys most of its fuel from the Middle East. And just like China, the Republic of Korea and Japan, India has recently become concerned about the fuel supplies, stemming from the instability in the Middle East, and is now looking for new ways to diversify its hydrocarbon imports by cooperating with Russia.

Russia and India are two countries that are linked by decades of mutually beneficial cooperation, including in such important areas as defense technologies, nuclear energy and space exploration. For a long time, the Indian company ONGC has been successfully participating in the development of deposits on Sakhalin Island in the framework of the Sakhalin-1 Project, providing its country with about 1 million tons of oil per year. In addition, between 2009 and 2016, Russian state corporation Gazprom supplied 1.7 million tons of liquefied natural gas (LNG) to India. Nevertheless, the volumes of Russian-Indian hydrocarbon trade can hardly be called large.

Among the reasons why Russia and India are not yet very active in oil and gas trading, one can name their geographical placements. Delivering energy by sea to India is much faster and more convenient from the Middle East. Shipping from Russia by land is also difficult for a number of reasons. Along the entire northern Indian border is the impassable Himalayan ridge, which complicates the link through the territory of China. It is much more convenient to deliver consignments to India via Pakistan, but this option is not yet viable due to the complex Indian-Pakistani relations. This is precisely why, in October 2016, India once again refused implementing the project of building a gas pipeline from Iran passing through Pakistan. According to the initial plan, this gas pipeline was supposed to begin operating in the early 2000s. However, neither India nor Pakistan have started construction.

Nevertheless, the situation in the Middle East is now forcing the East Asian countries to seek new suppliers and overcome the related difficulties. India and Russia are interested in cooperating in the oil and gas sector, and are considering various ways of implementing projects in this direction. Among them is a project for the construction of a Russian-Indian gas pipeline, something which has been on the table for a long time but still seemed too complicated until now.

In October 2016, Russia and India signed a Memorandum of Understanding on exploring possible routes for the supply of pipeline gas to India. The parties to this agreement were the Russian company Gazprom and the Indian company Engineers India Ltd.

Pipeline gas is cheaper and easier to use than LNG. However, its transmission over long distances requires installing specialized infrastructure. Until this is established, India can continue buying Russian LNG. In April 2017, the Russian Ministry of Energy announced that Gazprom was already planning to start delivering LNG to India as early as 2018. According to the agreement that Gazprom signed with India’s GAIL, India will receive about 2.5 million tons of LNG a year.

In addition, India could buy from Russia hydrocarbons produced not only on Russian territory. Russian oil and gas companies actively cooperate with the rest of the world, acquiring shares in foreign mining companies and deposits and attracting foreign partners for trade with hard-to-reach regions. Therefore, in February 2017, the Russian company Rosneft agreed with the Egyptian General Petroleum Corp. on the supply of crude oil to the Indian processing plant Vadinar.

At the end of May 2017, Gazprom released a statement to the effect that the main options for the delivery of pipeline gas to India have already been worked out, and their approximate cost is known. In total, there are ten options, but the simplest to implement are two.

The first option to be proposed to India again implies cooperation with Pakistan. Gazprom could take part in the construction of an Iran-Pakistan-India offshore pipeline to supply Iranian gas to India. This project would be cheaper than the others, costing about USD 5.7 billion, but it could again be hindered by Indian-Pakistani relations.

The second option involves the supply of gas from Russia to India through China and Myanmar, in line with a swap scheme. Russia would provide China with the right amount of gas from Siberian deposits, after which Myanmar would give to India the same amount that would otherwise be given to China. This option would require the creation of additional infrastructure, and is estimated at USD 16.5 billion, but India will most likely choose it.

As mentioned above, the option of building a Russian-Indian pipeline through Mongolia and China is also being considered, but it is estimated at about USD 35 billion, and is still considered unprofitable.

On June 1, 2017, during the St. Petersburg International Economic Forum, Russian President Vladimir Putin met with Indian Prime Minister Narendra Modi, in which Russian Minister of Energy Alexander Novak also participated. As a result, the St. Petersburg Declaration of the Russian Federation and the Republic of India, dubbed ‘A Glimpse into the 21st Century’, was adopted. The document reflects the plans of Russia and India to develop cooperation in various fields of energy in every possible way. The countries intend to render each other interaction in the nuclear, hydrocarbon and hydropower sectors, as well as in the development of renewable energy sources. Russia and India have expressed a desire to follow the Paris Climate Accord and reduce the amount of harmful emissions into the atmosphere. In particular, the role of using natural gas as an energy source that is safe for the environment was noted. Russia and India also plan to jointly develop hydrocarbon deposits on the Russian Arctic shelf.

Thus, it can be concluded that Russian-Indian cooperation in the energy sector, including in the hydrocarbon trade, awaits a prosperous future. India is in itself a large market, very attractive for oil and gas exporters. However, it should be noted that, apart from India, Russia is actively developing cooperation with other major economies of the region. China, South Korea, Japan, and ASEAN countries are also interested in Russian energy resources. This gives the Russian Federation the opportunity to become the most significant supplier of hydrocarbons on the Eurasian continent.

Electronic analytical journal New Eastern Outlook 2010-2018Republishing of the articles is welcomed with reference to NEO.The views of the authors do not necessarily coincide with the opinion of the editorial board.